Academic journal article Journal of Australian Political Economy

Post-Keynesian Theory and Policy for Modern Capitalism

Academic journal article Journal of Australian Political Economy

Post-Keynesian Theory and Policy for Modern Capitalism

Article excerpt

What is distinctive about post-Keynesian economics and what can it offer that is useful for heterodox economic theory and for economic policy? This article briefly describes the ancestry of post-Keynesian economics and the characteristics that distinguish it from other schools of thought, particularly mainstream theory. Recognising the central role of price theory in mainstream economics, attention then turns to the different perspective offered by post-Keynesians on the determination and role of prices in the economy. The final section suggests a post-Keynesian policy package.

Ancestors

We start with the ancestors of what now comes under the rubric of post-Keynesian economics, as well as our own mentors. When GCH gave this paper to the NSW Branch of the Economic Society of Australia at the Reserve Bank of Australia, an RBA officer commented: why worry about ancestors, the application of theory to an issue is all that matters. This is reminiscent of a general view among many economists, summarised in a comment told to Heinz Kurz by a colleague and to GCH by Phoebus Dhymes: "Why bother with the history of economics? What is good is all in Samuelson's Foundations of Economic Analysis, and what is not there to be found can't be any good" (Kurz 2006: 468). In reply we note three important considerations. First, it is good manners to acknowledge the source of ideas. Second, our generation was not trained as if economics started ten years ago (with a moving peg) and so was able to avoid rediscovering what were often inferior wheels. Finally, economic ideas are the result of an ongoing process of development and change. Without understanding whence they came, and the specific questions to which they were designed to respond, it is not possible to have a deep understanding of those ideas.

So our elders and betters include the classical political economists and Marx; Alfred Marshall (1); Thorstein Veblen; Joseph Schumpeter; Allyn Young; Maynard Keynes; Richard Kahn, Austin and Joan Robinson, Piero Sraffa; Nicky Kaldor; Richard Goodwin, Luigi Pasinetti; and, independently and increasingly importantly, Michal Kalecki, in our view the greatest all-round economist of the 20th Century. In Australia GCH had, as his principal mentors and inspiration, Eric Russell and Wilfred Salter.

Characteristics

The post-Keynesian view of the economy is as an historical process, with the unchangeable past influencing the present, and with inherent uncertainty about the future. This leads to a concern with historical time, where expectations have a significant and unavoidable impact on economic events. The world is messy and all important economic decisions are made within an environment of inescapable, fundamental uncertainty (in the sense posited by Frank Knight and Keynes). This environment gives rise to the use of conventions, rules of thumb, and 'satisficing' behaviour (looking for the first needle in the haystack that will do the job, not for the sharpest) (Baumol 1979: 76; Kriesler 1999; Halevi, Hart and Kriesler 2013).

Money and finance matters are integrated with real factors from the start of the analysis of what Keynes called the monetary production economy. This overturns the (neo) classical dichotomy between the two sets of factors--money and real production--and the associated view of the long-run neutrality of money. For post-Keynesian economists, monetary factors influence real factors and real factors influence monetary ones in both the short and the long period (Harcourt 2012a; Kriesler 1997). Post-Keynesian economists also recognise that economic theory may be written in terms of a whole spectrum of languages, running all the way from poetry and intuition through lawyer-like arguments to formal logic and mathematics. All have a place and role, according to what issues, or aspects of issues, are being analysed (Harcourt 1987).

Post-Keynesian analysis includes the presence of conflict and antagonism between different classes, with different characteristics and roles to play in the economic saga. …

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